- quote -

What I also think about is that the interest rates on CD's and savings accounts
will start to come back up soon. I can't see how they can stay at the rates
they are now forever. Once they come up, then I can switch from mutual funds to
more fixed rate interest rates in banks.

sizzlemp[at]aol.com (SizzleMP) writes:

- quote -

You're overlooking a big part of the equation here: with no mortgage,
you can save something like $24K/year that you would otherwise be
spending on house payments. You can think of that as being tax-free
"income" on your investment, and over the 30-year term of a mortgage
it will grow quite nicely, too. :-)

When you're making a decision about whether to pay off a mortgage, you
basically need to compare the mortgage interest rate to the pre-tax
return you might get by investing the money elsewhere. CDs now are
paying basically nothing, but if you think of the 30-year term of a
mortgage and are willing to take some risk, you might well get a
better return over the long term by investing in a blend of equities
and bonds. The other thing to consider is how much liquidity you need
in your assets.

-Sandra the cynic

- quote -


First off, stay away from your 401K, don't even consider that an option. If you
are tight for money you can cut back on your contributions or not contribute at
all, but do not borrow against it.
I would try to put at least 20% down on your new house to avoid paying PMI.
Like most people , you can take an equity loan out of you house now to get the
cash to buy the new house. Then simply pay off your equity loan when you close.
There are several loans to choose from. One in particular is a low ARM loan
with interest only payments. You start off at a low interest rate for the first
six months ( which is fine since you will sell your house in less that time)
and your payments are just the interest( Ex if you borrowed $100K [at]5% for 20
years your payments would be roughly $415 for the interest only, no principle).
As far as the advantages of making a big or small down payment, consider this.
I am in contract right now for buying a house. I also have my present house on
the market. Fortunately, I am in a situation of not having to sell my house to
get the funds to buy my new house. But I was facing a big decision of what to
do with the mortgage.I could either a) take out the biggest mortgage I could (
$333,700) and have roughly $350,000 in the bank after selling my house, or b)
take out the home equity loan on my present house, pay cash for my new house
and have no mortgage and be left with roughly $40,000 in the bank.
At first it sounded nice to have no mortgage. But thanks to all the great
advice from everyone in this newsgroup, I decided to take the biggest mortgage
I could. The $350,000 I would have in CD/ bond mutual fund will grow a lot
faster than the $40,000 I would have if I payed off my house.

In article <404356C5.2AEE[at]hotmail.nospam.com> , Charlie h
<ch57921[at]hotmail.nospam.com> wrote:

- quote -

I would suggest that the equity in your house will do as an emergency
reserve fund for the time being. I would take all of the liquid
assets, all of the current house equity, and none of the 401K money,
and make the biggest possible down payment (and cover the closing
costs). Having a house 50% paid off means much lower monthly
payments, and much more security. Even if the worst happens, it will
be far easier to make those smaller monthly payments. You also will
have the option of doing a 10 or 15 year loan rather than a 30,
which means a better interest rate, which saves even more money.

- quote -

Bridge loans are not as popular today as they once were. What I
see folks doing is using home equity loans that are taken out or
paid off at closing. There are usually no set-up fees for these
H/E loans, and the interest rates are cheap right now. And if
you have the equity, they are easy to set up.

- quote -

It sounds like you already know that taking out 401K money is a very
poor idea. It is expensive money, and it is your retirement. I
would even suggest that taking a loan from a 401K is not a very good
idea. In most cases, if you lose your job, that 401K money is either
due right away, or it becomes taxable income. Both options are bad.
The chances of losing a job is always there, but now, more than ever,
it is a reality for people who thought that they were safe.

- quote -

I wouldn't worry too much about taxes. The problem is that what is
right to do today may very well change at any time when either the
US Congress or your local state decides to change the laws. It is
also not a good idea to chase the mortgage deduction...it makes little
sense to spend $1 in interest to get 30 cents in tax relief. Its
OK to take the deduction if you have to have a mortgage, but don't
get a mortgage just for the deduction.

-john-

--
================================================== ==================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ==================

On Mon, 1 Mar 2004 11:43:43 CST, Sandra Loosemore
<sandra[at]frogsonice.com> wrote:

- quote -

Second that. Of all the risks you can think of in this process,
owning two homes has to be near number one.

If you need some wiggle space between sale and purchase, include in
the sales contract (the one you sign up front with the listing agent)
the word "negotiable" beside occupancy date. That way, if someone
wants in quickly, get 'em to give you some more money for it (and use
the extra money for rental quarters).

In fact, I always ask folks to put off any search for the new house
because they'll surely find it. The nice new house isn't a problem
anyway - selling the old one is. And when you find it, there will be
tremendous pressure on you to do something you wouldn't ordinarily do
- contingency clause, lower your current house price, etc. It can
ruin an otherwise fun experience.

Of course, you might get lucky...
<grin

-HW "Skip" Weldon
Columbia, SC

Charlie h <ch57921[at]hotmail.nospam.com> writes:

- quote -

If it were me, I'd put 20% down using money from your liquid assets.
You'll get more cash to replenish your emergency fund when your current
house sells. If it were me, if I needed more short-term cash for moving
and other expenses in the meantime, I'd prefer to draw on my credit cards
rather than touching a 401K.

But.... this assumes that you are confident you can sell your current
home pretty much immediately, and at a price that will give you your
equity back. Having to pay two mortgages for months while you're
trying to unload your old house can really be a major drain on your
finances. If you think this could happen, you might want to put off
signing a contract to buy a new house until you have a firm offer on
your old one.

-Sandra

My wife and I are in the market for a house. We already own one, plan
on selling it after we buy the new one.

In our target price range, we have the following assets to apply to a
purchase:

1/4 of cost of new house in liquid assets
1/4 of cost of new house in equity in current house
1/4 of cost of new house in 401 Ks

Other issues:

-- We're fairly risk averse
-- We hope to stay in the new house for 10+ years
-- Logistics pretty much require us to stay put in the current house
until we sell it
-- We hope to rely on one income for a couple of years until the kids
are in school -- day care costs come close to equalling the second
income, and we both don't want to park really young kids in day care if
we can avoid it.
-- We don't have ton of time to manage investments -- much prefer to
park it in a Mutual Fund/CD

What I'm trying to figure out is:

-- how big of a down payment we should make?
-- where to take/borrow the money from?
-- how to move the money around to minimize loan fees?
-- what are the costs and benefits of making a big down payment now, vs.
making a smaller downpayment with an accellerated payment schedule?

In a perfect world, we would obviously just apply all of our liquid
assets to the down payment, but of course we need an emergency reserve,
need to cover closing costs, moving costs, etc.

I've looked a little bit into bridge loans based on the equity in the
current house, but have had a hard time figuring out the costs.

As an alternative, I've thought about borrowing from 401Ks short term
(Absolutely, positively NOT long term) but worry about opportunity
costs.

Short term, I want to minimize immediate costs (loan fees, points),
avoid an overly complicated strategy, keep a sufficient cash reserve for
unexpected moving/house repair/closing costs, and put down a sufficient
down payment to avoid mortgage insurance and generate trust on the part
of the seller.

One year after purchase of the new home, we want to be able to have the
401 Ks fully funded, a 6 month cash reserve fund, smaller monthly
mortgage payment, extra assets to balance out the loss of one income,
and also minimize our long term payout of interest.

Thinking about this starts getting really complicated, throwing taxes
into the equation gets more complicated, so any insights would be
appreciated.